OREANDA-NEWS. Fitch Ratings has affirmed Belfius Bank SA/NV's (Belfius; A-/Negative/bbb+) EUR5.5bn mortgage pandbrieven at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS
The affirmation follows a revision of Fitch's breakeven overcollateralisation (OC) for the 'AAA' rating to 13.5% from 23.0%. This was mainly driven by the high excess spread levels and the improved maturity mismatches between the assets and the liabilities under Fitch's updated cash flow analysis for the programme.

The rating is also based on Belfius' Long-term Issuer Default Rating (IDR) of 'A-', an unchanged IDR uplift of 1, an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk) and the 34.2% OC that Fitch takes into account in its analysis, which provides more protection than the 13.5% 'AAA' breakeven OC. The Stable Outlook on the pandbrieven rating reflects Belfius' 'bbb+' Viability Rating (VR) and that a potential downgrade of Belfius' IDR to its VR due to support reasons would be compensated by the IDR uplift of '1' assigned to the programme.

The 'AAA' breakeven OC of 13.5% is driven by the cover pool's credit loss of 7.3% in a 'AAA' scenario (compared with 8.5% previously). The cash flow valuation component has reduced to 5.5% from 10.5% previously and reflects the high excess spread levels and a reduction of the gap between the stressed weighted average life of the assets versus the liabilities. The asset disposal loss has reduced to 3.9% from 7.4% previously, reflecting the improved maturity mismatches between the assets and the liabilities and the reduction in Fitch's refinancing spread assumptions for a 'AA' rating scenario. The breakeven OC considers whether timely payments are met in a 'AA' scenario and tests for recoveries given default of at least 91% in a 'AAA' scenario.

The unchanged IDR uplift of 1 reflects the covered bonds exemption from bail-in and that the issuer is systemically important in its domestic market, so that Fitch considers that resolution by other means than liquidation is likely.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to a downgrade if any of the following occurs: (i) Belfius' IDR is downgraded by two notches to 'BBB' or lower; (ii) the number of notches represented by the D-Cap and the IDR uplift is reduced to three or fewer; (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'AAA' breakeven level of 13.5%.

Since the pandbrieven rating can sustain a one-notch downgrade of Belfius' IDR to its VR, the Outlook is Stable despite the Negative Outlook on the bank's IDR.

The Fitch breakeven OC for the pandbrieven rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the pandbrieven rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a full rating report, which will shortly be available at www.fitchratings.com.

In the report 'Breaking Down Breakeven Overcollateralisation', dated 8 July 2014, Fitch details its approach for determining the breakeven OC components.